Lots of people want to be rich, to become a millionaire. But without a systematic wealth accumulation plan, they are doomed to failure. It takes personal discipline and sacrifice to build a capital base. Once you build your capital base, then you have to prudently invest in smart opportunities. Most will never achieve their ambition by the time they retire, says Guy Baker, a seasoned US-based financial adviser and author of several books on how to get rich. Why’? Because they

are unwilling to pay the price of success. They would rather spend and live for the moment.

“There is no way most wage earners will become wealthy. They arrange their affairs so they have “too much month at the end of their money.” “instead, the only viable path to financial freedom for most ordinary people is to convert part of their income into capital and invest it in a way that generates wealth as well as a steady flow of income, he added.

Guy, who will be in Singapore in March 2012 to conduct the Success Secrets – a two days Success Symposium for the Financial Advisers with Bruce Etherington, is living proof it can be done. Guy worked his way through graduate school selling life insurance. After graduating with a MBA in Finance, Guy signed up to to become a full time agent with US financial sen/ices firm Pacific Mutual at age 25 in the 1970s. Ambitious and single-minded about striking achieving his goals, Guy worked hard and carefully channelled his income into investments. By the time he was 32, he had accumulated his first million.

“I used those same principles I taught others. They really worked for me “he tells PSMResource. “(My first million) was from an accumulation of investments, mainly in real estate.”

Today, at 66, Guy, who runs a California-based asset management consulting firm called Wealth Teams Solutions has continued to invest and grow his family’s wealth, meeting and exceeding his personal goals. In addition, he has given away thousands of dollars to Christian causes, including starting a church and classical school with now over 70 students.

Having attained personal financial independence, Guy says he spends his time sharing his knowledge with other financial advisors around the world by giving talks, writing books and freely sharing the principles he has used for his own personal benefit.

One of Guy‘s trademark wealth building strategies that he freely shares with others is his “13 principles for financial success”, outlined in his flagship book Baker’s Dozen.

“I have taught people to follow those principles for nearly 50 years. Those who have followed them have done very well financially,” he says. “Are they guaranteed to make a million’? The answer is no. But the 13 principles are a systematic and “time-tested” way to attain financial independence,” he adds.

Starting out small

The first step to getting “rich” is to realise money isn‘t going to fall from the sky, nor is it likely to come from the lottery, say Guy who is a certified financial planner and chartered financial consultant. “Nothing will happen unless you first save money. You have to rearrange your affairs so there is surplus. That‘s my first principle. Pretty simple.”

That is easy enough for people with high incomes and surplus each month, of course, but what about average wage earners who live from pay cheque to pay cheque? Guy’s answer is to start small, with, say, $20.00 or $100.00 a month. “You have to build the habits of success. When I first started saving, I save 50% of everything I earned. The trick is build the habit of saving and then systematically work your way out any financial hole you may have dug.“ Once you inculcate a saving habit, people then tend to “become obsessed” with it and keep doing it in greater amounts. “It is like playing video games,” says Guy. “You know how obsessed one can get when playing those games.“

Write down goals and track them

To provide some discipline on savings, Guy recommends people come up with a monthly budget. No business owner would think of running their business without a budget. Outlining one’s future expenses is a way of ensuring you know where your money is going. Wasting money is easy to do without a budget. “Controlling what you spend is my second principles.” says Guy.

The third is to get rid of all your debts other than long term mortgages and maybe a car payment. Consumer debt is foolish because it shows an inability to control spending. “I have NEVER carried credit card balances. The interest costs are horrendous. I use a credit card, but pay it off every month.”

According to Guy, the best way to begin clearing all your consumption-related debts is to rank the debts from highest to lowest and then pay off the smallest one first. After settling the smallest debts, move those payments to the second-smallest debt and so on. “ln no time, all the debts will be cleared. Most people start with their biggest debt and try to work that one off while the little ones keep getting bigger and bigger. They allocate a little money to all the debts and make no progress. Finally, all the debts get out of control.” Guy’s next principle is to set life-time goals and investment objectives. “There was a study done by Princeton University (in the USA) a number of years ago. They found 80% of their graduates had never written down their goals and had fallen short of their desire to be successful and make a difference. Only 5% had actually written their goals down and they were all very successful people.” He adds the conclusion from the Princeton study and other similar studies is it isn’t enough just to have goals. “You have to write them down and track them. Hold yourself accountable.”

Making your house a profitable investment is Guy’s fifth principle. “It is important to be smart about buying your house, which is one of your biggest investments,” he says. By using prudent leverage and taking the time to do some homework about picking the right house in a good location, a home can be a powerful tool for wealth accumulation.

The sixth (principle) is to take care of your family’s security.” Guy says, “lf something happens to you, you have to ensure your family doesn’t fall apart financially. This is a moral obligation everyone has to the ones they love. To avoid this responsibility shows no responsibility and it is unloving and selfish.” A crippling illness can be more devastating and costly to a breadwinner and his family, than death. “If you don’t have any other way of providing financial security for your family, then life and disability insurance is a good place to put in some of your dollars.” Guy asserts it is only after taking care of the security of one‘s family they ought to proceed with investments and work towards their ultimate goal of financial independence.

Bucket System

Not being greedy, investing wisely and not spending the income generated by your investments constitute the next two principles. In order to have a systematic and disciplined way to invest your money. Guy devised his “bucket strategy.” This is not referring to some form of rustic, outdoor plumbing system, rather, it is about apportioning appropriate amounts of money to different types of investments.

Diversification of risk is paramount to investment success.

Savings & cash surpluses flow into “bucket ONE” and fills it up first. Once the assets in bucket one are completed (these are highly liquid and their risk and rate of returns should be conservative) you can work on bucket TWO.

The appropriate amount of assets for bucket ONE varies from one person to another, depending on their income and how much liquidity is needed. But as a rule of thumb, you should have 6 months income directed to bucket ONE. According to Guy, money in bucket ONE should not be touched unless there is an unexpected financial emergency. These investments might include savings accounts, CDs, treasury Bonds, annuities, cash values of life insurance.

“Wealth is a state of mind.” Guy explains what he means by that: ‘Money is not happiness. What you do with that money, such as helping other people, is the path that leads you to happiness. ‘According to Guy, charity and responsible handling of money are what ultimately makes the rich happy.

“Once you hit your goal for bucket ONE, let’s say a target of $25,000, then whatever you earn in this bucket, together with your monthly savings, should flow into bucket TWO.”

This one is made up of investments that reward risk. Investments in this bucket should have higher expected rates of return and higher risk than the assets of bucket ONE. However, the risk should be moderate and liquidity should also be reasonably high. Long-term buy-and-hold investments such as mutual funds, variable annuities, conservative individual stocks and bonds designed to take full advantage of compounding growth are ideal instruments for bucket TWO. “Bucket TWO is filled up when you reach a target of $100,000 or $150,000 for example. Then depending on your financial circumstances, you may want to proceed to fill up bucket THREE.” Guy says, “Bucket THREE

consists mainly of what Guy calls “frozen assets”. These are illiquid assets and may include businesses, real estate, commodities and private equity investments. Investments that could take years to liquidate.

“Most of the greatest wealth builds in frozen assets” Guy points out, “It is very difficult to get your money out of these investments and it could take 5, 10 or 20 years before you even see your initial capital again.

But these are vehicles which could give the highest returns.” To invest in bucket THREE-type assets, one needs staying power. Instruments with the highest potential returns often attract investors who do not have the staying power to withstand the economic cycles and volatile nature of these assets.

“Many put their money in frozen assets without thinking of the downside. Then, when they need cash, they are forced to liquidate those assets at a huge loss in order to survive. That has been one of the most common mistakes investors make. It is a SIN of the highest order to lose capital.”

He adds that his bucket system of investing helps avoid such this horrible mistake.

Relnvest the Income

In order to get the most out of your investments, Guy recommends investors reinvest any income the investment produces. “When you earn interest on your saving account, don’t withdraw it and spend it.” He says. Likewise, for dividends on your stocks, reinvest the income and let your money grow. And control your spending.” Only people who need the money for their daily living expenses, like retirees, should use the income from their
investments. For his part, Guy claims that his net worth generates significant personal income so he can be independent of his business. “A lot of people think they have all these assets and are very wealthy, but if those assets don’t generate income, what good is their wealth’? The only thing that is valuable, is the income
the your money makes.”

Guy’s ninth principle is to study how other people made their money. In fact, one of his hobbies through the years has been to read the life stories of wealthy people. He wants to discover how they made money, what principles did they follow’?. “I am interested in knowing what path they followed and what was the critical junction in their life that made a difference.” The 10′” step is to invest in who and what you know. “Most people make mistakes when they get out of something they know intimately.” Guy says, “A particularly bad move is to invest with somebody you do not know well or in investments you are not familiar with. These will almost always result in losses.” The next principle is to invest regularly to take advantage of dollar cost averaging, as well as to diversify your risks. “Most people don’t really understand what diversification means ever after you take pains to explain it to them,” laments Guy. He adds that concentration in potential higher return-but-riskier investments often leads to a collapse in an investment portfolio. Proper asset allocation should be done to ensure one’s investments are efficiently diversified.”

Taklng Stock

Another important principle is to constantly review your progress and goals. “In retrospect, the single biggest mistake I made, was to have not continued to update my goals and plans as I achieved success. I sat down and tried to redirect myself. What was it I wanted to do for the rest of my life. I was about 35 and I had accomplished all my goals to that point. Not having a longer ranged plan set me up for some bad decisions.” The last of Guy’s principles for financial success is to have wealth as a state of mind. He explains what he means by that: “Money is not happiness. What you do with money, such as helping other people, is the path that leads you to happiness.” According to Guy, charity and responsible handling of wealth are what ultimately makes for happiness. His final word of advice to people who are striving to be millionaires is they should have a sound financial plan or process, and follow it diligently. “Don’t keep jumping around,” he counsels. “If you find a book that you like, read it and do it. Don’t read another (book) and change course suddenly. Find some principles which are comfortable. Act with confidence and follow you intuition.” Even if you are not shooting the lights out with double digit annual returns, compounding 5-6% over a long period of time, is enough to achieve your financial objectives. Be diligent and stay the course.